GameStop Ventures Into Online Game Distribution

GameStop, a retailer of games with over 6,400 stores globally, is beginning to make a push into digital game delivery by acquiring San Francisco-based Kongregate Inc. Though GameStop did not disclose the amount it paid for Kongregate, the game distributor and retailer said that it has set aside $100 millions to invest in its digital business, to compete against popular online games such as Zynga’s Farmville, playable on Facebook, social games that require Internet connectivity, and the advent of instant game downloads on mobile devices popularized by the iPhone.

The digital strategy employed by GameStop will help the physical retailer mitigate the risk of obsolescence experienced by other entertainment retailers, like Blockbuster–who have been out-challenged by Netflix–and Tower Records who lost the race with the digital rise of iTunes. In fact, sales of traditional games are slowing–down 6% in June compared to a year ago.

Faster Internet connections, increases in storage capacity, and rises in CPU power are helping to fuel the digital trend, but for dedicated gaming consoles with high-resolution 3D titles and intense graphics the shift to digital downloads may not happen right away due to the size of the game and the storage required. In that regards, physical game sales may be safe for now, but an early digital strategy may help the retailer thwart off competition in that space.

Kongregate has 10 million players and 30,000 titles of web-playable games accessible on computer browsers. Revenues generated by Kongregate is split evenly between advertising and sales of virtual currency to help players customize their experience and quickly move through levels.